Staying the Course

October, in many ways, is a remarkable month. Between peak foliage color, Halloween, and the beginning of the fourth quarter of the year, October is also known for an uptick in stocks prices following September, which is renowned for its dismal markets.

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”
John Maynard Keynes

 Playing the markets month to month, however, is risky business, especially considering that not all stocks performed poorly in September and that there’s no guarantee that those that did will be the ones to recover in October. Of the big seven tech giants, only Meta and Tesla were able to finish out September in the green, while Apple and Nvidia dropped about 10%, driving down their respective indices.[1] On the flipside, oil and the US dollar rose, $20 a barrel over the quarter for oil, and 2% in September for the USD. Moving into 4Q, then, the question remains: will markets recover in October?  

Another concern is inflation, which, while cooling, is still outpacing the Federal Reserve’s target of 2%. A chart from Fidelity Investments above demonstrates how inflation, while cooling, is still adversely affecting essentials (i.e., food, gas, and rent) over discretionary spending (goods that aren’t necessary, such as televisions or gamepads).

Inflation remains a real concern for many Americans who aren’t accustomed to inflation in the recent past. Standards of living are now changing and other advisors, including Fidelity, are recommending that emergency funds be doubled to compensate for the rise in expenses. Emergent’s perspective is that this tactic is redundant since, if your expenses have doubled and your emergency fund is based on your non-discretionary expenses, as is widely recommended, then your emergency fund should have grown in proportion with those expenses.

The one safety net, however, for inflationary environments has always historically been the stock market. This is because the underlying value of a good does not change, only how many dollars it takes to purchase.

Hence, a stock, which is a share of a company, doesn’t decrease in value simply because it can be traded for a currency that’s worth less. Stock prices appreciate with inflation, which is one of the chief reasons the wealthy tend to fair better during inflationary periods:  they have historically been exposed to stocks and goods that simply appreciate with the dropping value of the dollar.

Looking at the chart to the right, you can see a visual demonstration of this effect. Investment returns tend to appreciate value over cash, validating the “hold your course steady” style of investing and living. Don’t panic, just hold the course and let time work for you.

[1] The S&P 500 Index fell 5%, the Nasdaq Composite Index fell 6%, and the Dow Jones Industrial Average fell 4%